GOVERNMENT DECISION:THE GOVERNMENT decided to nationalise Anglo Irish Bank because it had serious concern that the controversy over the concealment of big loans to former chairman Seán FitzPatrick would compromise the bank's capacity to raise inter-bank funding and increase the cost of such funding, informed sources have said.
Amid fears that the bank’s fragile condition would soon lead it to insolvency, the Cabinet’s decision to nationalise the bank came the day before it was to hold an egm to sanction a €1.5 billion recapitalisation by the State.
Anglo’s new chairman, Donal O’Connor, was called to a meeting in the Department of Finance on Thursday afternoon to be told the Government had withdrawn its offer of €1.5 billion to recapitalise the bank.
Mr O’Connor called a meeting of the Anglo board immediately afterwards. The directors concluded around teatime that the bank had no alternative but to accede to nationalisation. The current board will be replaced, possibly as early as next week.
While Anglo planned to immediately adjourn the egm yesterday, it faced questions from angry shareholders for about three hours.
The nationalisation comes amid reports that the British government may move in the coming days to create a “bad bank” to manage toxic debt held by British banks, a development that would put Minister for Finance Brian Lenihan under pressure to quickly follow suit. He has not ruled out that option.
Further turmoil in international banking yesterday underscored the pressure on the Irish banking system. US banks Citigroup and Merrill Lynch, now owned by Bank of America, reported huge losses, and shares in Britain’s Barclays plummeted amid fears it might need more capital.
Despite the Government guarantee on all deposits in Anglo, the bank is known to have lost significant deposits since the scandal broke shortly before Christmas. But sources said these losses were not in the same order of magnitude as before the State guarantee was introduced last September, in advance of which Anglo lost €4 billion in deposits.
Although the loss of further deposits was a big risk for the bank, Mr Lenihan has said there was no “run” on Anglo. Mr FitzPatrick resigned from Anglo on the night of Thursday, December 18th. His departure – and the departure of chief executive David Drumm – is known to have prompted concern within the Government that Anglo might lose deposits the next day, in advance of its decision to recapitalise the bank on the following Sunday.
Since then, however, the Government concluded that the severe reputational damage to Anglo and the banking system at large arising from the FitzPatrick loans would hinder efforts to restore the bank to stability.
Described as “fundamentally unsound” by some sources with knowledge of the thinking within Government, the bank also faces the threat of a big increase in its bad debts as risky loans worth many billions of euro turn sour as the economy contracts.
The Office of the Director of Corporate Enforcement (ODCE), the financial regulator and the Irish Stock Exchange are known to be investigating the loans.
ODCE and financial regulator officials have been conducting inspections within the bank since the start of the year. At issue, according to some sources, is the scale of the loans vis-a-vis Anglo’s business, the prospects of repayment and their concealment.
There was no comment from the ODCE, and the regulator declined to comment.
